As I write this blog, a new year has started. January is the time to reflect on the past and what we accomplished during the last twelve months. It’s also the time to start planning for the future. 2020 is bound to be an eventful year. A lot of things are up in the air. Congress is impeaching the President. We’re in trade wars with China and others. The Presidential election is upon us and, whatever side you’re on, you must agree that it’s not going to be a smooth and orderly process. We can’t predict the future, but based on my recent conversations with our clients, many are looking at 2020 with an increased sense of trepidation. They are worried about the impact of the upcoming Presidential Elections on the economy and the real estate market in particular. How can we get prepared and better yet – how can we leverage that uncertainty – as real estate investors?
First of all, let’s admit: the last several years have been pretty good for us in the real estate business. For those of us investing in Maryland, the home prices have been steadily increasing since 2012. Regardless of how you feel about Trump, his Presidency has been good to real estate investors – at least so far. We’ve got tax breaks both as real estate investors and business owners. Perhaps most importantly, for better and worse, he’s been successfully pressuring the Federal Reserve to keep interest rates low. If you’ve been in the real estate business for a while, you know that it’s the low rates that fuel the activity and the growth in our sector.
However, if there are lessons that we’ve learned about the real estate crash of 2008, it’s that whatever goes up must come down. The economy is cyclical, and so is the real estate market. In my opinion, this is what’s fueling increased anxiety about 2020. After all, we’ve already had eight incredible years with the real estate prices growing as steady as clockwork. Aren’t we due for some lean ones by now? To throw the politics in the mix, if a Democratic President takes office, he or she is unlikely to hold the interest of the real estate industry as near and dear to heart as President Trump does. On the other hand, if Trump stays and continues to prop up the real estate growth, are we entering the same Faustian bargain of letting the short-term greed jeopardize the overall health of the real estate market as we did 15 years ago?
We can debate those issues until we are blue in the face. Instead, let me bring this discussion closer to home. We all know that real estate is local. What might be going on in the Florida or Arizona real estate market has little bearing on the DMV market. We are the area that is uniquely propped up by high-paying jobs that are directly or indirectly supported by the Federal Government. Yes, we’ve enjoyed years of steady appreciation, but the appreciation alone is no indicator of a real estate bubble. Appreciation is what real estate does, and this is why it’s a great way to build wealth.
If you read the real estate reports, the local real estate is hitting a new high virtually every month. For example, this October 2019 report from MLS boasts setting “new records” with the median price of $431K. However, it’s just a modest increase of 2.6% from last year. Since 2015, the DMV market had an overall appreciation of 7.75%. It’s nothing to sneeze at, but it’s not suggesting any bubbles bursting soon.
The inventory was low in 2019 and will most likely remain low in 2020. But it’s also nothing new: in the last years we’ve seen competition intensify. The years of when the only thing you needed to get a good deal is a pair of thermal underwear (so you would freeze your butt on the court-house steps during an auction) are well behind us. In 2020, just like in 2019, you need to rely on your own perseverance, marketing savviness, business skills, and luck to make the numbers work. But again, if you’ve done it already, you can do it again.
Coming back to the Presidential elections. The research shows that things do slow down around November. However, it appears that this slowdown is similar in nature to the Holiday season. The activity doesn’t evaporate – it gets pushed to the next month. As a hard money lender, we see this fluctuation every year: we have a slow December followed by a super busy January.
Still, what can you do to ensure that you continue to build wealth in real estate in 2020? I can think about at least two new strategies you can try next year, and you can read about them in our next blog here.